Commercial Division Blog

Posted: January 6, 2023 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Seth D. Allen, Joshua Wurtzel, Hillary S. Zilz / Categories Breach of Contract, Commercial

Plaintiff Stated Claim For Breach Of The Implied Covenant Of Good Faith And Fair Dealing

In an Amended Decision and Order, dated December 3, 2022, in EarthLink, LLC v. Charter Commc’ns Operating, LLC., Index No. 654332/2020, Justice Andrea Masley granted in part and denied in part Defendant’s motion to dismiss Plaintiff’s claim for breach of the implied covenant of good faith and fair dealing based on Defendant’s making false representations to EarthLink’s subscribers and by wrongfully increasing the price of EarthLink’s service to its subscribers.  The Court explained: 

"The implied covenant of good faith and fair dealing between parties to a contract embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." (Moran v Erk, 11 NY3d 452, 456, 901 N.E.2d 187, 872 N.Y.S.2d 696 [2008] [internal quotation and citation omitted.) A breach of the implied covenant claim is duplicative of a breach of contract claim if "both claims arise from the same facts and seek the identical damages for each alleged breach." (Amcan Holdings, Inc. v Canadian Imperial Bank of Commerce, 70 AD3d 423, 426, 894 N.Y.S.2d 47 [1st Dept 2010] [citations omitted], Iv denied, 15 NY3d 704, 934 N.E.2d 321, 907 N.Y.S.2d 752 [2010].)  "However, causes of action for breach of contract and breach of the covenant of good faith and fair dealing may stand together where the defendant engages in conduct that injures or frustrates the other party's right to receive the fruits of the contractual bargain." (MBIA Ins. Corp. v Credit Suisse Secs. (USA) LLC, 32 Misc 3d 758, 778, 927 N.Y.S.2d 517 [Sup Ct, NY County 2011] [citation omitted].)

In asserting a basis for its breach of implied covenant claim, EarthLink first points to the misrepresentations allegedly made by CCO to EarthLink's subscribers. But these same misrepresentations constitute the basis of EarthLink's breach of contract claim (NYSCEF 15, Amended Compl. Compare ¶¶89-96 to ¶112 and ¶110), and thus they cannot constitute the basis of a breach of implied covenant claim.

EarthLink also alleges that that CCO wrongfully and secretly increased the price of EarthLink subscribers' service and falsely attributed those price increases to EarthLink. (NYSCEF 15, Amended Compl. ¶ 61.) These price increases would constitute an independent breach, as EarthLink alleges them as CCO's attempt to frustrate EarthLink's right to the fruit of the HSSA, and they do not constitute the basis of EarthLink's breach of contract claim. Thus, the breach of implied covenant of good faith and fair dealing cause of action based on alleged price increases by CCO may proceed.

The attorneys at Schlam Stone & Dolan frequently litigate breach of the covenant of good faith and fair dealing claims.  Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such claims.